In Phoenix, Zombie Subdivisions Wake From Slumber

PHOENIX — During the Great Recession, home builders in the suburbs abandoned neighborhoods that were only half built. The so-called zombie subdivisions left a ring of unfinished construction around cities like Phoenix.

But now the zombies are waking up as developers in the Southwest are scrambling to keep up with another frenzied demand for housing.

When the region’s housing party ended, local government was left to clean up the mess. Since 2009, Phoenix got about $116 million in federal stimulus money to improve blighted property. Then, it teamed up with builders and got to work. That's why zombies like Gordon Estates in South Phoenix are coming back to life.

On a recent morning, a cement truck poured its payload into an unfinished driveway while work crews put the final touches on 14 new homes. The city is running out of foreclosed properties to resurrect, according to Neighborhood Services Director Chris Hallett. “The inventory out there is slowing,” he said. “That’s a sign of a good economy, and a sign that our work here is just about done.”

The housing recovery in Phoenix is in full swing and the supply of existing homes cannot keep up with buyer demand. In response, builders began snapping up empty lots late last year. The easiest targets were zombies already equipped with sewers and streetlights.

“The opportunity to acquire distressed lots or failed communities is long gone,” said Mandalay Home President Dave Everson. “They’re now in the hands of people who are either building them or are in the process of getting started to build them.”

Mandalay is the builder that helped finished off Gordon Estates.

Everson said he has bought up about half a dozen distressed subdivisions himself, and he has reason to be optimistic about their future. New-home sales in April were up 27 percent compared to the year before.

During the recession, builders re-calibrated. They drew smaller floor plans and cut back on fancy amenities. “But what we are finding is that as the market is healing we probably underestimate the consumers’ desire for a little bit larger home,” Everson said.

Actually, the homes are about 30 percent larger, “between the average size of a new home, and the average size of a resale,” said Mike Orr, a housing researcher at the W.P Carey School of Business at Arizona State. “I think that’s significant.”

The extra space may have something to do with parents who need bigger houses to accommodate their unemployed adult children, Orr said. But more likely, it’s just industry picking up where it left off.

“I think the city planners would like to have much denser city centers with tall buildings, but the builders know how to make money doing it the old way going out on the outer fringes,” he explained.

That's where many of the zombie neighborhoods are waking up. Back in 2011, Realtor Greg Swann took me to the Laveen Farms subdivision in West Phoenix, where fire hydrants emerged dolefully from the desert floor and sidewalks lead to nowhere.

The scene is not much better in 2013.

“When you recover from a heart attack it takes time,” said Swann, as he observed a crew of workers milling outside a dozen big, new homes. “This year is definitely better than two years ago, but there are limits to the enthusiasm you can express for this.”

Across the region, about 350 subdivisions are actively selling new homes. In a normal market, that number is around 600, according to Orr’s research.

Swann’s point is this: when things are really moving in this city, you’ll know it.

“If there’s a truss on a truck everyday when you’re driving on the freeway and you’re trying to angle around that truss because you can’t see, then they’re building houses,” Swann said. “If that’s not a problem, then nobody is building anything.”